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The imprecision of volatility indexes

Author

Listed:
  • Rohini Grover

    (Indira Gandhi Institute of Development Research)

  • Ajay Shah

    (National Institute of Public Finance and Policy)

Abstract

Concerns about sampling noise arise when a VIX estimator is computed by aggregating several imprecise implied volatility estimates. We propose a bootstrap strategy to measure the imprecision of a model based VIX estimator. We find that the imprecision of VIX is economically significant. We propose a model selection strategy,where alternative statistical estimators of VIX are evaluated based on this imprecision.

Suggested Citation

  • Rohini Grover & Ajay Shah, 2014. "The imprecision of volatility indexes," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-031, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2014-031
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2014-031.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Implied volatility; volatility index; imprecision;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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